Explaining The Gold Price After The Bretton Woods Agreement Using Independent Variables An Arima Model Approach

Master's Thesis from the year 2014 in the subject Economics - Finance, grade: 1.7, University of Leicester (Center of Management), language: English, abstract: To date, nobody has formulated a comprehensive theorem to determine gold valuation or precious metal prices. Until fairly recently, Eugene Fama’s Efficient Market Hypothesis was the predominant paradigm explaining asset markets but today it is widely acknowledged that markets can be irrational and investors are prone to act irrationally. When trying to explain gold market anomalies, behavioural science approaches can be useful. Phenomena such as herding (‘group think’), ‘safe value bias’ and investors’ ‘excessive extrapolation’ can help explain positive price performance over a certain time. In this dissertation, the author investigates the applicability of a multivariate ARIMA (auto-regressive, integrated, moving average) model to help explain gold price movements from 1973 to 2011. This model uses the gold price and independent variables such as inflation, real interest rates, silver prices, the US dollar money supply (M2), oil prices, the MSCI World index and the S&P 500 as these are linked to gold and/or highly correlated with the gold price. The evaluation criteria were defined as R-squared, mean absolute percentage error (MAPE) and BIC. The model was calculated over so-called ‘normal times’ and times of crises (one political, one financial). The researcher used SPSS’ Expert Modeler to find the best-fitting ARIMA model and to identify the independent variables significantly contributing to the fit of the model. Remarkably, a multivariate ARIMA model using independent variables explained almost twice as much of the variability of the gold price as a univariate ARIMA model using only the gold price. Also, throughout the complete period and during normal times the model explained a much higher percentage of the variability of the gold price than during crises and comparably more of the independent variables contributed significantly to the fit of the model (5 vs. 2). This can be explained by investors’ tendencies to buy gold to preserve their assets (“safe value”), to follow the crowd (“herding”) and to extrapolate past price chart developments. The results show that in an attempt to discern the cause of gold price movements, a multivariate ARIMA model outperforms a univariate ARIMA model significantly. The results of the study furthermore indicate researchers evaluating different methods to fit a time series should consider a multivariate ARIMA model, especially if the independent variables are highly correlated with the dependent variable.

This book contains a collection of Michael D. Bordo's essays written singly and with colleagues on the classical gold standard and related regimes based directly or indirectly on gold convertibility. The gold standard (and its variants) was the basis for both international and domestic monetary arrangements from the third quarter of the nineteenth century until 1971 when President Nixon closed the US gold window, effectively ending the Bretton Woods International Monetary System. Although the gold standard and its variants are now history, it still has great appeal for policymakers and scholars.

This is a timely review of the gold standard covering the 110 years of its operation until 1931, when Britain abandoned it in the midst of the Depression. Current dissatisfaction with floating rates of exchange has spurred interest in a return to a commodity standard. The studies in this volume were designed to gain a better understanding of the historical gold standard, but they also throw light on the question of whether restoring it today could help cure inflation, high interest rates, and low productivity growth. The volume includes a review of the literature on the classical gold standard; studies the experience with gold in England, Germany, Italy, Sweden, and Canada; and perspectives on international linkages and the stability of price-level trends under the gold standard. The articles and commentaries reflect strong, conflicting views among hte participants on issues of central bank behavior, purchasing-power an interest-rate parity, independent monetary policies, economic growth, the "Atlantic economy," and trends in commodity prices and long-term interest rates. This is a thoughtful and provocative book.

Project Report from the year 2013 in the subject Economics - Statistics and Methods, grade: 1,0, , course: ECO 309, language: English, abstract: For this project I created a twelve month forecast for Total Vehicle Sales in the United States using four different methods. These four techniques are called exponential smoothing, decomposition, ARIMA, and multiple regression. To do so I picked one dependent (Y) variable along with two independent (X) variables and collected 80 monthly observations for each variable. This historical data allowed me to create four different forecasting models which predict future Vehicle Sales with low risk of error. The best model according to the lowest error measures was winter’s exponential smoothing method because it had the lowest MAPE along with the lowest RMSE for the fit period as well as the forecast period.

The purpose of the Special Issue “Quantitative Methods in Economics and Finance” of the journal Risks was to provide a collection of papers that reflect the latest research and problems of pricing complex derivates, simulation pricing, analysis of financial markets, and volatility of exchange rates in the international context. This book can be used as a reference for academicians and researchers who would like to discuss and introduce new developments in the field of quantitative methods in economics and finance and explore applications of quantitative methods in other business areas.

This book presents modern developments in time series econometrics that are applied to macroeconomic and financial time series. It contains the most important approaches to analyze time series which may be stationary or nonstationary.